Minutes Ahead: Investors Get Look at Rate Debate

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Tuesday, December 30th. Federal Reserve minutes loom this afternoon, providing investors an inside look at debate leading to the December 10th rate cut. Major markets continue to trade in a thin holiday mode, though sessions today and tomorrow are their normal lengths before Thursday's closure for New Year's. Wall Street sagged Monday when tech stocks ran into what might be end-of-the-year profit-taking and material stocks lost ground as silver and gold reversed their recent rallies.

0:50Looking ahead to minutes due at 2 p.m. Eastern time, the Fed's decision to cut for a third straight meeting on December 10th wasn't without controversy as three policymakers voted against the 25-point move. Two wanted no change and one wanted an even larger reduction. The Fed's dot plot of rate projections also showed a wide range of opinions, though the median estimate was just for one cut in 2026. The Treasury market disagrees with that, still baking in two to three cuts. The meeting minutes will likely show a range of opinions about the outlook for Fed policy, said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research, With inflation running above target and the labor market slowing but not falling off a cliff, the Fed will likely move at a slow pace cutting rates.

1:42We still expect one to two more cuts next year. Minutes are also worth checking for arguments behind holding steady and cutting further. Anyone arguing for steeper cuts might have justified that with concerns about the employment situation, while those opposing a rate move might have pointed to inflation trends they're watching. Either argument detailed in the minutes would potentially offer investors deeper insight into what trends policymakers are monitoring and what to watch as economic data filter in. Speaking of which, the Fed's economic projections were quite rosy, and the minutes might provide thinking behind that as well.

2:21The median Fed estimate is for 2026 gross domestic product or GDP to rise 2.3 percent, up from its September projection of 1.8 percent, while unemployment falls to 4.4 percent from 4.5 percent in 2025 and inflation drops to 2.4 percent in terms of personal consumption expenditures or PCE prices. How the Fed thinks growth can accelerate, unemployment can stabilize, and inflation can fall, a Goldilocks scenario, something investors might try to glean from the minutes. That's especially true in light of the central bank's statement noting rising unemployment and inflation with slowing job gains. Downside risks to employment, the Fed said, have risen.

3:08Minutes might make the conflicting current situation and Fed projections clearer, outlining why Fed officials think their policy or other factors might improve the situation.

3:21Fed minutes aren't going to have an impact before 2 p.m., so until then, investors will hunt for market-moving information on a day with few scheduled items. Earnings are in hibernation until the new year, though today offers some economic data. Notably, the October FHFA Housing Price Index and October S &P Cotality Case-Shiller Home Price Index are both due shortly before the open. Consensus for FHFA is 0.1 % month over month, while the S &P Case-Shiller Index is seen up 1.1%, Euro-over-year briefing.com said. That means annual home price growth would slip from 1.4 % in September and 1.6 % in August.

4:04September growth was the lowest in more than two years. With data and earnings mostly on hiatus, attention turned to geopolitics early this week. Tensions in the Middle East sent crude oil up 2 % Monday, supporting major oil company shares. This came after Iran's president said over the weekend that his country is in full-scale war with the U.S., Europe, and Israel, according to media reports. Energy stocks including ExxonMobil and ConocoPhillips got a boost. Along with that, there's a new flare in relations between the U.S. and China as Beijing launched what the Wall Street Journal called major military exercises in the waters and airspace around Taiwan Monday.

4:47This follows the Trump administration's approval of a large package of U.S. arms to Taiwan. In other news across the Pacific, China is expected to release its official NBS manufacturing numbers for December late tonight U.S. time. The headline manufacturing figure has held below 58 straight months, meaning a contraction in factory activity. This partially signals lighter demand for Chinese exports, which often reflects economic trends in Europe and the U.S., major export markets for Chinese goods. Analysts think contractionary trends continued in December. Major U.S. indexes slid Monday from Friday's all-time highs.

5:30Volume at the New York Stock Exchange was 26 % below the 20-day moving average, while NASDAQ volume was 28 % below. This could mean Monday's moves don't reflect firm negative conviction, and Friday's run to highs likely didn't reflect firm positive conviction. Also, last week's highs were barely above the previous all-time high from late October, meaning the market's been mainly treading water for two months. December jobs data due next week, followed by the start of earnings season the following week provide catalysts. Checking sectors. Infotech finished in the bottom three Monday as Oracle, NVIDIA and Broadcom lost ground.

6:13For NVIDIA, this may have been end-of-the-year profit-taking after the stock made a one-month high last week. Broadcom has also been on the recovery path following its sell-off in early December, but ran into pressure Monday. There was little news behind these moves to start the week. There also wasn't much news in the consumer discretionary sector, which was the second-worst daily performer and pulled down by Tesla. This came after Tesla's CEO Elon Musk warned of high silver prices potentially raising the cost of industrial production. Musk's words could help explain Monday's 6 % dive in the silver futures market, though prices remain up 60 % from their November lows.

6:55Gold also plunged Monday, but isn't far off recent all-time highs. Some of the metal's strength could reflect speculative funds rotating out of crypto, where Bitcoin is down 31 % from its all-time high set in October and fell another 0.5 % Monday. Mining stocks that had rallied last week on gold's strength went the opposite way Monday, with three-port Mac Moran falling 2.9 % and Newmont dropping 5.8%. Materials was the weakest sector. The first zone of technical support for the S &P 500 index lies in a range between 6 ,825 and 6 ,840, Briefing.com noted. Below that, there's support between 6 ,760 and 6 ,775.

7:44The index managed to close above the psychological 6 ,900 level yesterday after falling below it intraday, a positive technical signal. Treasury yields finished down more than two basis points for the benchmark 10-year note, below 4.11 percent in near-recent lows. This was despite a stronger-than - expected November pending home sales report released Monday. The drop in metals prices might have fended off some inflation fears boosting Treasuries. The futures market priced in 16 percent odds of a January rate cut as of late Monday, according to the CME FedWatch tool. Chances have fallen since last week's surprisingly firm U.S.

8:26third-quarter gross domestic product, or GDP, report. Market participants see growing chances of a rate cut by the time the Fed's March meeting, where chances top 50 percent of rates being down at least a quarter point, from the current 3.5 percent to 3.75 percent. Among individual performers Monday, Micron bucked the lower trend in tech by climbing more than 3 percent, as strength continued following its recent earnings and signs of growing demand and limited supplies of memory chips. Lululemon Athletica climbed 1.7 percent after its founders said he had launched a proxy fight by nominating three independent directors to the company's board, CNBC reported.

9:09Novo Nordisk fell 1.7 percent Monday after Bloomberg reported the company reduced prices for obesity drug Wigovi in parts of China. And Digital Bridge Group added more than 9 % after Bloomberg said Japan's SoftBank is in advanced talks to buy the company.

9:30The Dow Jones Industrial Average fell 249.04 points Monday, or 0.51%, to 48 ,461.93. The S &P 500 index lost 24.20 points or 0.35 % to 6 ,905.74. And the NASDAQ composite gave back 118.75 points or 0.50 % to 23 ,474.35. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

10:28For important disclosures, see the show notes and schwab.com slash market update podcast.